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Good afternoon, everyone. Thanks very much for coming. And those of you who are watching this live stream, thanks for taking a look over your lunch or whatever else you're doing. I want to-- is it a little bit too loud, or is it me?
It's good.
It's good? OK, I'll leave it be. I wanted to just talk for a moment about how we got here today. So Cornell University now in its 150th year, as you well know is a complex organization with expenditures each year approaching $4 billion. And it's very hard to get one's arms around the details of the finances of Cornell.
Beginning about six years ago, working with CFO Joanne DeStefano, we began to develop a series of concentric circles of getting more and more financial information out to the community-- excuse me, beyond what's available publicly through the audited financial statements, which I'm going to refer to in a few minutes.
The first thing we did was to make sure that the people in the specific leadership positions in the university, vice presidents, had their arms around the details, and that we developed those details in a format, along with the Finance Committee of the Cornell University Board of Trustees. Then, we expanded that to include all the deans, vice provosts and vice presidents, the dean of faculty who get detailed financial information every single month. And that's been going on for some years.
It is true, and I want to take personal responsibility, that I've been sluggish about bringing that area of more detailed broader beyond the top leadership of the university. And that's been pointed out to me eloquently by faculty, students, and staff mainly on the Ithaca campus, but actually everywhere in the university. So today is an attempt to move forward with broader transparency.
The way I had hoped we could do this is I have 37 slides to share. I'd like you to, if you would, allow me to go through the slides so that you can see the entirety of the presentation. Most but not all of this is taken from public sources. There are some things in here that are opinions. When you see things that are obviously opinions, please know that those are my opinions. Don't blame anybody else in the central administration, unless you are close to one of those people, and you want to blame them, which is fine with me. But otherwise, think about those as my personal opinions.
The way we've set this up is that if this goes as I hope it will, we'll have about 20 minutes for Q&A at the end of walking through the PowerPoint. And you can submit questions along the way. Right now, if you have your computer out, if you're not here in G10, you can see the slides. The whole slide deck is out there. You can see them. I'll remind you what slide number I'm on for those who are at their desks right now.
And you can submit questions. I'm sure I won't be able to get through all of them today. But we'll do the best we can to answer questions both here and those that are sent in. And this URL, cornell.edu/video/townhall, cornell.edu/video/townhall, is a way to get those questions out. So let's begin.
An overall summary of what I'm going to share with you can be summarized really in two bullet points. One is that seemingly contradictory realities reinforce the need for a transparent conversation regarding university finances. And the goal of this conversation, beyond an increase in transparency, is to engage the campus community in a discussion of values and priorities to make critical choices.
And I want to emphasize the word "values," that we have to agree on what the values are. Our wonderful university has 150 years of values that have made it what it is. And I'm hoping that we keep our eye on those values.
The state of university finances, and forgive me for delving into a tiny bit of accounting. If you look at the audited financial statements of the university, you will see a deficit projected. And if you look at the cash accounting, you'll see a balanced budget. So please forgive me if I take just a couple of minutes to, for those of you who haven't had a chance to run into this before, the different concept between cash accounting and accrual accounting.
Cash accounting is how most of us run our lives and our checkbooks. If you have an expenditure that you make by writing a check out, you count that that day. If some income comes in, your Cornell check or whatever it is, you put in your bank account. That goes in that day. That's cash accounting. That's what we're used to.
Accrual accounting is a form of accounting which is traditionally used for audited financial statements by regulation for organizations such as ours in which, when you make the commitment to make an expenditure, you book that expenditure even though the money hasn't been spent yet. And when you know that money is going to come in, even though it hasn't arrived yet, you book that revenue.
And the other big difference is that depreciation for the organization, for the physical plant specifically, is figured in in accrual accounting and not in cash accounting. So if you're doing your checkbook and your car is aging, nothing in your checkbook tells you that you need to put money aside to replace or repair the car. But in accrual accounting, you would.
So with that quick background, the consolidated operating budgets of the university, combining Ithaca and Weill Cornell on a cash basis are balanced for this year. The projected margins as of January 31, which is the most recent date that we have data that's been completed, is a margin of $3.5 million for the Ithaca campus and $5.9 million for Weill Cornell. That makes a university wide margin of $9.4 million in the numerator and a denominator of $3.8 billion. So our margin is 0.25%. Let's call it break even.
Now, if you look at the university's audited financial statements which are publicly available and have been for years, you will notice that we have an operating loss. And that's because we are not routinely covering all the depreciation expense for maintenance of buildings and other depreciation expenses. Now, most of you here or watching on Cornell Cast live through this. And I just want to remind you what you did to bring Cornell back to a balanced budget.
In the year that the great recession started, which was our fiscal year '09, '08-'09, the university had a deficit of about $100 million. And our projection over the years that followed up was that without very significant and decisive action, we were projecting by the next year, $160 million, running all the way out to over $200 million by the year that just ended.
What actually happened, though, was by the very next fiscal year, we had a balanced budget. This is $0. And it's remained barely balanced since then. How did this happen? How did Cornell University turn around a very substantial deficit into a balanced budget? You did it. The faculty did it by bringing in grants, more grants, by teaching more students. The staff did it by taking on more responsibility per person, and through the staff retirement incentive, and canceling searches for vacant positions, and layoffs. We reduced the staff workforce 8%.
But the work of the university continued, at least at the same level. So that's how the staff contributed. And the students contributed because of the increase in tuition. So everybody in the university contributed to this dramatic turnaround in one year that's been maintained over the following years. So what I'm going to do in the rest of the presentation is give you a more detailed overview of the size and scale of the university and revenue and expense profile, and then talk about financial details and outlook.
In the overall size and scale of Cornell University, university wide, not just Ithaca, it's a total operating revenue of $3.8 billion, a long term investment pool of $5.9 billion, a book value of the physical plant-- the buildings-- net of depreciation of $3.7 billion. And remember, this is all posted now. So you don't need to take notes. You'll have all this once we're done. And those of you watching on the computer have it right now.
The overall employee headcount of Cornell University, 15,700. Last year, Cornell University, the 14th largest employer in the state of New York, including all of New York City. And research expenditures brought in by the faculty and staff and students, $777 million. Big, big operation. Let's take a detailed dive into the diverse revenue sources of the university.
The way this slide is set up, these are the operating revenue sources. These are the dollars for the Ithaca campus in millions. These are the dollars for Weill Cornell. This is the dollars for all of Cornell University together and the proportion, the percentage, of revenue sources of each type. You can look at it on your own. I don't want to take too much time to read it. But just roughly, for the whole university, $900 million in gross revenue. That's not counting the financial aid expenditures.
The Physician's Organization of New York City, very large and growing, $774 million in revenue, sponsored programs-- that is, grants and contracts brought in by faculty, staff, and students-- $654 million. Educational activities and other, $543 million. Investment distribution, the payout on the endowment, on the long term investment pool, $314. Gifts of $231 million. The difference between these two lines? This distribution is the payout from the endowment. These are funds given by generous alumni, parents, and friends of the university for use in the year in which they are given, so-called current use funds.
Housing, dining, other auxiliaries are $200 million. And state and federal appropriations, separate from competitive sponsored research, another $149 million. So that's an overall picture of revenue sources. Now, let's go to just the Ithaca campus now. The previous slide was the whole university. This is the Ithaca campus. And we're now on slide nine, if you're following from your desks.
For the Ithaca campus, because there's a very large number of students, gross tuition and fees is 41% of the university's revenue sources. Sponsored programs, 19%. The payout from the endowment, 12%. And outright gifts, 7%. So together, philanthropy, 19% of the Ithaca campus revenue sources. Same with sponsored programs, and then educational and other activities, 7%. The same percent for housing, dining, and auxiliary. The same percent for state and federal appropriations.
So that's where the money comes from. Where does the money go? This is about the Ithaca campus only, fiscal '14, and the entire expenditure, $2.2 billion for the Ithaca campus. So a quick review, $3.8 billion for the whole university, $1.6 billion spent at Weill Cornell Medical College. $2.2 spent at Ithaca campus.
As in every human intensive entity and organization, the majority of the funds go to people. That is, wages and benefits for employees, faculty and staff. It's very important to recognize that just barely half of our expenditures go for people. And those of you who are cognizant of other nonprofit organizations that are human service intensive will be used to a higher percentage than half, perhaps 60% or 70% depending on the organization. And the reason that that percentage is what it is and not a higher number is because we have very substantial expenditures for space on this campus.
Fully 15% of the Ithaca campus expenditures go for space related expenses, including utilities, rents, and leases, debt service that is principal, and interest on our long term debt, facilities renovation and construction, and repair and maintenance. Also, about 13% goes to general expenses, a miscellaneous category of 3%, and in recent years since the recession, we have very dramatically increased our need based student financial aid. And about 17% of our expenditures now go for need based financial aid.
Many undergraduates have asked me in recent weeks, where does undergraduate tuition go? And I'll give you a direct answer to that question. As I've just shown you, undergraduate tuition covers about 40% of the cost of the overall campus operation. It pays for a portion of the faculty and staff salaries, who teach and provide student services and help operate the campus. It goes to maintain the libraries and classrooms and laboratories and studios and other campus buildings. And as I've just shown you, it helps to provide need based financial aid, obviously enhancing the diversity and the opportunity at our university.
The other 60% of the cost of the operation comes from payout from the endowment, direct gifts, grants, state support, and other revenue sources. So that's my attempt to answer that question. I'm glad to take questions later obviously about that. Now, we'll move on to financial content and outlook. And we're on slide 13 for those of you watching on Cornell Cast.
Please bear with me through a very busy slide. The entire higher education sector is seen by bond rating agencies as facing significant challenges. For those of you who don't run into the concept of bond rating agencies on an everyday basis, these are agencies-- and two of them are Moody's and Standard and Poor's-- that rate, that rate, the reliability of a source that sells bonds to pay out those bonds.
So if a nonprofit is selling bonds like we have sold bonds to build buildings or any other nonprofit or for profit, the rating agency assesses the overall financial condition, leadership, and so on of the organization and gives a rating related to how much confidence a consumer who buys those bonds can have in getting that bond paid.
Moody's says that the outlook for four years-- this was in just December of last year-- the outlook for four year US higher education is negative. Meaning not certain going forward that these organizations will be reliable in terms of the balance of payments.
Standard and Poor's 2015 outlook for the US not for profit higher education sector remains negative. Why? Why does it remain negative? And remember, this is for the entire higher ed sector, not for Cornell necessarily. The quote is, "We maintain a negative outlook for the sector due to lingering stagnation of operating revenue, stagnation of operating revenue, coupled with mounting expense pressures and weakening of overall operating performance. Constrained net tuition revenue growth is a key driver of the negative outlook, but most revenue streams are growing at a slower pace and are more competitive to secure." And I'm going to share some of the data behind those statements with you.
Now, I want to summarize in a qualitative sense, my opinion, about Cornell's financial strengths and challenges-- my opinion. Under strengths, we do have a balanced overall operating budget, which is much, much different than we were in '08, '09. We do enjoy diverse revenue sources. Tuition is important, but it's less than half of the funds that help to operate the university, and that was gross tuition, not net of financial aid.
We do have very robust fundraising, as I'll review in a moment. We do get support from the state of New York, generous support, I believe, given the revenue constraints that the state's been under. We do have very dramatic sponsored research and an increase in sponsored research. We have good endowment earnings. And in Weill Cornell, we have a very, very robust physician organization and clinical practice.
We have a growing New York City presence, which has brought a lot of attention to the university and has actually increased, not decreased, philanthropy and attention to the Ithaca campus. We have a great diversity of academic programs, and we have extraordinarily strong student demand that is many times the number of applicants that we can accept.
But we have challenges. Although the overall university budget is balanced on a cash basis, not all units have a balanced operating budget, including the provost. And many of you are aware that the provost budget has a $55 million deficit, which is the reason that there are budget cuts that are going to happen at the beginning of next year. Glad to talk about that more later.
The financial statement that's done by accrual accounting, including depreciation, does show an operating deficit. Meaning that right now we're not spending enough money to optimally keep up the large $3.7 billion dollar physical plant of the university.
We have, then, obviously little financial flexibility for new investments. What does that mean? That means that 0.25% of our operating budget is, quote unquote, in black ink. Which means we're barely breaking even and don't really have the flexibility to do the many new programs that the faculty and staff and students will create, or would like to create.
We have a very high percentage of assets in facilities as compared to peers. And it's something I want to emphasize that we've had the great privilege of enormous success in fundraising for capital development. And we have a beautiful campus with wonderful facilities in the north and west campus for student residence halls and many other new or fairly new buildings.
But we have spent a lot of funds. And we've borrowed a lot of money to get there. And we have some aging facilities, and quite a bit of deferred maintenance, some of that to a point where we really have to begin to pay more attention to it.
Federal research funding, as the faculty and the advanced students know and the staff knows, is quite constrained, as are state appropriations. And we have below average financial ratios. And I'll define that in a subsequent slide. And we have increasing reliance on short-term strategies to balance the operating budget. Part of the issue of the provost allocation is tied to this issue that we have too often used funds that were not reliably recurring to pay for expenses that are predictably recurring.
Now, let's talk a bit more about fundraising, which has been enormously robust. In the last year, Cornell alumni and parents and friends gave so generously to Cornell that we were ranked sixth among over 1,000 colleges and universities. Sixth in the amount of successful fundraising. The university wide capital campaign that started the year that Vice President Phlegar and I began in '06 is in total now $5.8 billion, one of the largest fundraising achievements in the history of higher education.
Where is that money going? About 22% of it, or about $1.3 billion, has gone into the endowment, the long term investments of the university. We can talk more about the endowment in a moment. About $1.2 billion are pledges for future payment. About 35% percent, the largest proportion, are for current use funds. And I asked at the time of the beginning of the great recession that we emphasize current use funds so that we had more money available to spend that very year for everything from faculty hiring to salaries to student need-based financial aid.
About 10% is going to capital developments and then other areas here. 85% of the dollars that are raised in any given year are restricted to a specific purpose, like a professorship, a building or space within a building, or need-based student financial aid, undergraduates, graduate fellowships, and other. Now, I want to look back a little tiny bit.
The university priorities that were developed by a faculty committee in 2010 have these particular priorities. I'm not going to take time to read them now. But I do want to point out that the number one priority was felt to be faculty renewal. And that's because the projection is that the faculty who are my age or older, if you can imagine such a thing, are projected in a general statistical sense that about 1/3 of us will retire over the next 10 years. So even though-- because we have no mandatory retirement, and because we're one of the most tenured campuses because we very much believe in tenure, I very much believe in tenure, and we have a relatively small proportion of non-tenure track faculty-- because of all of those reasons, we can't predict exactly when people my age or older are actually going to decide to retire.
So an idea came up to do a faculty renewal program, which would allow us to hire new faculty in anticipation of retirements in subsequent years. And we did that through reallocation of funds by the deans. And the deans matched dollar for dollar philanthropy that was brought in. And the program came in over our expectations and over our goals. And we were one of the early schools hiring faculty at a brisk pace during the worst part of the recession.
Now, the investments themselves that came from that portion of the philanthropy that goes into the long term investment pool is shown here beginning in 1979 and going all the way through the fiscal year that ended last June. Now, if you look at it, of course, it's appreciated a lot over the years. Right here is the beginning of the Great Recession. Just reminding everybody here that there's no one still working, in the working world, who has lived through a worse economic downturn than you have all lived through in the Great Recession.
And this took our long term investments down by 26%. But because of recovery of the market, because of good handling of the investments by the Investment Office, Staff Office, and also the Board of Trustees Investment Committee, the combination of gifts and good investment performance has brought it back basically to where it was before the Great Recession struck.
Now, let's talk a bit more about the endowment, which is a very substantial pool of money. Out of the thousands of colleges and universities in the United States, fewer than 100 have endowments of $1 billion or more. Fewer than 100. So we're in rarefied air at Cornell University to have a long term investment pool of approximately $6 billion.
About 3/4 of that pool is inflexible. And there are some flexible funds. But the most important thing I want to tell you about how endowments are managed, not just at Cornell, but in general, is that only a small percentage-- 5% or so-- is brought to pay out to the university every year. Why is that? Why don't we dip into the endowment when times are tough?
Well, the main reason is that we want to have that available for future generations, hoping that the endowment returns are higher than the proportion that we're paying out so that the endowment continues to grow. But we have increased the payout very dramatically, in '08, '09. I asked the Board of Trustees, because I was getting letters from families literally around the world saying, we're going to have to pull our student out of Cornell because I, or my spouse or partner, have lost employment, or gone down to part time, whatever it is.
And I asked the board, while the endowment was shrinking because of the market, to allow us to increase the payout. And they unanimously agreed to do it to maintain affordability for Cornell. And they increased the payout very dramatically, by $35 million a year for each of five years. The last one was last year.
Now, this is the endowment calculated per student capita. The red curve are undergraduates only, and the blue curve is all students. Of course, not surprisingly, those curves parallel each other. And the endowment per student has been growing in a very steady fashion. However, compared to our peers, not to the thousands of colleges in the United States, the vast majority of whom don't have substantial endowments, but compared to the schools the faculty, staff, and students very much want to compare ourselves to, we are among the lowest endowment per student capita. Here we are down here at $233,000 per student capita.
Now, at the top of this scale are Princeton, Yale, Harvard, and Stanford where the proportion per student is in the millions. And we have $233,000. So we're not in dire straits. We do have an endowment. We've used it wisely. But compared to our peers we have relatively less flexibility in that fashion, as well.
How have the faculty and the staff and students, but largely the faculty, done in bringing in sponsored research? Well, they've done pretty well. And they have increased slightly those funds from '05 or '06 to the present. So it's been steady. This includes about $116 million that were in the president's-- when I say the president-- the other president's funding, the ARA funding, the stimulus funding. And that's how that has accrued.
This is a busy slide. It's number 23, as President Molina would like me to every single time film the slide number. Sorry. And now, what this shows is years along the horizontal axis beginning in 1989 and going to last fiscal year. And the blue histogram bars, the blue bars show the growth in faculty, student, and staff lead acquisition of sponsored research funds.
So we have definitely improved. However, in 1989, we were third in the nation in research funding. And we have fairly steadily fallen in the last several years, basically the last six, seven years. We've been around 15th or 16th. So the faculty are working very hard, have definitely increased it. But we are losing, if you will, some of the market share for sponsored research to our most distinguished competitors.
Now, where do those research funds come from? About 56% are federal. And I'm going to explode that in a moment and show you what agencies. And 21% is non-federal. And this could be corporate, for example, or corporate foundations. New York state and federal appropriations, and important to point out that Cornell, cleverly labeled in red, is 15% of research expenditures, or about $100 million, of the $777, that's actually put in by the university to maintain research infrastructure and to pursue new ideas.
Of the federal sector, of the federal sector, the big agencies from which we get our funds, Department of Health and Human Services, largely the National Institutes of Health, the National Science Foundation, this is a Cornell piece of foundations. Others, state appropriations and so on. But these are the federal agencies. Some from the Department of Energy, of course the USDA, and the Department of Defense.
Now, I talked earlier about New York state putting money into Cornell University which, as you know, is the land grant university for the state of New York. This is slide 26. And it shows that state support was in the $130 to $140 million a year range. It went up to $170 million just before the recession and has come steadily down. So in recent years, there's no question that state appropriations have declined.
I do want to say, though, as someone who spent my earlier career entirely in public higher education, including being president of a public university, that this is still very generous funding for a private school that is this land grant university for the state of New York, but nonetheless a private, fairly well endowed school. The state or New York still puts these funds in. And a very important contribution the state makes-- you see the benefit packages of employees supported in those parts of the university.
Now, I want to talk a little bit about financial aid. Financial aid has increased dramatically, as you can see on this slide, has increased over the years, but especially dramatically since the troubles at the beginning of the great recession.
We now spend about $240 million a year on need-based student financial aid. You saw that that was a big portion of our expenditures. I'm very happy about this. Last year's, not this year's, US News and World Report ranking had us again in the top 10 schools for economic diversity of the undergraduate student body compared to research universities in the US, not compared to the great community colleges and others, but compared to our type of school, in the top 10 most economically diverse. And I'm very, very proud of that.
And I want to say publicly that I fervently hope, fervently hope, that in the future the university will maintain a strong commitment to need-based student financial aid. Otherwise, people like I was when I was a student and many students who are here now would probably not be able to manage.
Now, has need-based financial aid made Cornell University universally affordable? No. Has it eliminated debt for Cornell students? No. But let's talk a bit more about that. Now, this is a busy chart. Let me walk you through it.
These are years from '94, '95, to '14, '15. So 20 years. And this is the median net cost ratio. What this means is the proportion, the proportion of the listed price of tuition, the proportion paid by students and families of different income levels. I hope that makes sense.
So people who get no financial aid from Cornell University, by definition, they pay 100%. And that's the line across the top. So there's no question that families who do not qualify for need-based student financial aid at Cornell are paying more and more to go to Cornell. Now, some of those families make enough money, as I do, that they can pay cash for their students going. It doesn't make a major impact on the families. Others, even though they do not qualify for Cornell financial aid, it does have an impact on them. So we have not totally solved this problem.
Now, the other lines here, the other data points are the five US income quintiles. And I want to explain that just for a moment. We give need-based student financial aid depending on the overall family financial situation, total assets and other things. We get financial aid across all five quintiles of the US income population.
And as you can see, by looking at these quintiles, in all quintiles of the US population who qualify for need-based student financial aid at Cornell, all are paying less as a proportion of the listed price than they have in a very long time-- less. And in inflation adjusted dollars, in inflation adjusted dollars, not a ratio, but inflation adjusted dollars, those students who qualify for need based financial aid are paying less in actual inflation adjusted dollars today in median net cost than they did at the beginning of the recession.
So this program has been successful for those families that qualify for need based student financial aid. Let's talk about indebtedness, one of the major issues in the United States in terms of affordability. Undergraduate debt at Cornell is controlled by a cap on loans for families that make $60,000 or less. No loans are asked for Cornell. For those who make up to $75,000, $2,500 annual cap. And you can read for yourself. And for families that make more than $120,000, we cap the loans that we package at $7,500. So the debt in any given year, the debt in any given year, the proportion of the students who borrow money in that year has decreased at Cornell from '07, where 43% of students borrowed in any given year, to 33% in the last year.
So that's really terrific news. It's a very good outcome of need-based financial aid. And this happened while the student body was becoming more diverse. So last year's entering freshman, current freshman, the most selective and the most diverse student body. And while it was becoming more diverse, the proportion who borrowed money in a given year went down to about 1/3. Still a lot of students. And the percent of enrolled students who graduate with loan debt nationally in 2013, 69%. In Cornell in 2014, 45%.
So roughly half of our students graduate with debt. At what levels? The national mean for private non-profits, that's the category obviously that Cornell is in, end up at graduation, the mean, of $30,000. That means many students are borrowing less, many students are borrowing more. But the mean, $30,000. And last year, Cornell's mean indebtedness at graduation was $21,000.
Still substantial, but much less than what it is nationally and what it was earlier at Cornell. We're now moving on to slide 30. Looking forward now, the Ithaca campus expenditures have been pretty predictable and pretty fixed over the years. So in thinking about our future, we've got to think that these expenditures are going to be there.
So wages and benefits, we've already had a very substantial alteration in the alignment between work and hands on deck and the staff ranks. Fewer staff are doing the same or greater work. And so obviously, this is one area that I believe going forward Cornell needs to try to protect as much as humanly possible.
Undergraduate financial aid has been, if anything, going up or stable. Graduate financial aid, the same. General expense, the same. Utilities, rents, and taxes, the same. Debt service for the whole university, $100 million a year. $75 million a year of debt service for the Ithaca campus. For total operating expenses for Ithaca of $2.2 billion.
I'm going to talk a tiny bit more about debt. We're getting to the end of the talk. We have rising debt levels, as I know you're aware. Much of the construction that you've seen on campus over the last 20 years has been supported very substantially by debt, although a lot of philanthropy and reallocated funds from colleges and units have gone into it.
Nonetheless, the debt went up and up and up, and especially in the last decade, to the point where we were at about $2 billion of debt on overall budget of $3.8 billion. And because the university's been able to pay down some of that debt, it's about $1.6 billion now.
Now, I want to get back to the bond rating agencies. This is where we stand in those bond ratings. And before I tell you where we stand, you might say, who cares? Why do we care what the bond rating agencies ask? Well, a small reason is that the cost of borrowing goes up as your bond rating goes down. The cost of borrowing goes up. You're sort of covering that risk.
But more important, people's confidence in the university's overall financial status and management tends to correlate directly with the bond rating. And we've been very near the top of both Moody's and Standard and Poor's. We were at the second notch, second from the top, in both of them. We were downgraded in '09 by Standard and Poor's. And they assigned us a stable outlook, downgraded us but said we were stable. Moody's in 2010 assigned us a negative outlook, saying they thought things were going to get worse for Cornell.
But by 2012, they removed the negative outlook and upgraded us to stable. So that's where we stand. Now, I told you I'd show you some financial ratios. This is a ratio calculated called the expendable resources to debt.
So the numerator are the resources that could be used to settle debt. And the denominator is the overall debt. So obviously, you'd like to have that ratio be greater than 1. You want to have more resources that could be expanded to settle debt than you have debt. So this is Cornell University's curve going from fiscal '05, where the ratio was 4 plus, in other words, four times the amount of expendable resources than we had debt.
But as the debt increased, and as our assets went down during the beginning of the recession, that ratio went down basically to 1. So we just had enough resources to cover the debt if we had to. And it's slowly, very slowly, been rising. And it's about 2 now.
How do our peers look? Those are the peers who are rated AA, more or less where we are. And these are those that are rated another notch higher, another notch higher. So among our peers, and again this is rarefied-- these are peers that have a lot of resources. We have among the worst in terms of the ratio of resources that can be placed against debt.
Finally, looking forward, in summary, we do have contradictory realities. It's very unsettling, very jarring for the campus to see enormous fundraising campaign, break all expectations, and then see budget cuts applied to the university.
So we do have constrained federal and state budgets. We have rating agency pessimism, and we have suffered one downgrade. We have near term financial projections, which are break even but barely so. And we have a significant increase in compliance requirements.
So if you have colleagues who work for any organization in the university that does compliance or that is regulated from externally, and many are, whether it's the Cornell police, or Environmental Health and Safety, or research labs, you will know that these requirements are going up, up, up. On the other hand, we have very strong long term investment performance, very, very strong philanthropy, and increasing demand for Cornell education.
So what can we do as a community? And as my talk ends, I'm going to get to the part where you will need to pitch in through your shared governance groups directly by communication with me, directly by communication with your supervisor, directly by communication with your department head, or dean.
We have to decide, as a community, how we are going to return financial flexibility to a greater degree to Cornell University. Could we get by the way we are now? Yes, we could. We have a balanced budget. After this year, we're going to be very much on the way to a balanced provost budget. But what's missing is the chance to dream our dreams and have increased flexibility. And how we're going to do that is going to have to be some combination, I believe, my opinion, of increased revenues and decreased expenditures.
These are not all going to be popular things. But again, I'm giving you my honest opinion based on these data. First, we may have to add academic programs and talk about it. We may need to increase class size, or least discuss it. As dramatic as the philanthropy has been, we may need to focus on even more and creative kinds of philanthropy.
The faculty who have been so successful in getting grants may have to think about further increasing the number of research proposals. The industry and foundation sources for research funding are going to have to be thought about more carefully. One example of that, probably the most dramatic example, in the humanities.
When I was beginning in administrative work some years ago, the National Endowment for the Humanities used to be the source of about 70% of the funds for humanistic scholarship at universities. That funding went down and down and down, and now the Mellon Foundation funds more than the National Endowment of Humanities, including quite a bit on this campus. We may have to think more creatively about non-federal funding.
And we need to leverage assets or space. So if a room like this room is not being used fully at all times, can we find purposes to use it that would help us increase revenues? And you and your colleagues, I'm sure, will think of many other ideas better than I will because nobody knows better how the university works than the person working at each local desk, at each local laboratory, at each local studio.
Decreasing expenses, the most difficult part of any exercise such as this, academic and research program changes may need to be considered. We have done some of those. They've been done very vigorously in [INAUDIBLE] over the last two deans. They've been done elsewhere in the university. These are hard decisions to make. Very important for the overall flexibility of the university to at least consider academic and research program changes.
We need to come together as a community and agree to do procurement, to purchase things in a way that costs less per item purchased. It may require different ways of purchasing them. It may require, at some times, slightly longer waiting times. And sometimes, that's not acceptable. But sometimes, it is acceptable. And this kind of change is very, very, very hard to accept. But I think we should think about it.
Our staff in the procurement area have gotten us to the point where about $30 million a year has been saved, recurring money by changing procurement methods. And I believe we can do better than that. And they're ready to do better if the university community will be comfortable with change.
Financial aid was reexamined a couple of years ago. And we slightly altered it so that a little more debt burden was placed on our families. I hope, as I said before, that we will maintain the very robust amount of need-based financial aid.
I think we're at the point now for at least a few years where we need to very, very seriously reduce construction, new space. When new space is brought online at a university, a new building, not only does it cost to build the building, but there are additional costs beyond the capital cost of building that add to the university's recurring budget.
And our CFO estimates that since '08, since '08, we have increased the annual expenditures related to new space and buildings by over $35 million a year. Think about that for a moment compared to the $55 million provost deficit. That doesn't mean the space wasn't needed. It doesn't mean that the space isn't appreciated. It just means that we need to think very carefully about taking care of the existing space and building less new space.
Outsourcing activities is always a painful thing to think about. And we have done some of that in various parts of the university. It's something that's always worth talking about. And then definitely, trying to aggregate administrative operations, as has been done quite vigorously since so '08, '09. And I'm sure that we could do more. And Interim Provost Katz and Vice President Opperman are leading a group that's reviewing this again now. And we'll see what they come up with. And again, I know that many of you will have other ideas.
The very last slide, number 37, as I said in the beginning, I hope we can come together through those mechanisms I mentioned earlier, the shared governance groups, local discussions in your department, unit, college, or whatever it is, and consider all existing revenues and expenses. I think everything ought to be on the table. Identify potential new revenue sources that are consonant with the mission of university. Refocus capital planning toward infrastructure upkeep. Continually review administrative processes across the university. But, but, as we do that, we need to manage the workforce levels and align them with strategic priorities.
We have to work to align the amount of work we're asking people to do with the number of people available to do that work, and cannot continue to just unload additional work on a shrinking staff pool. Easy for me to say. It'll be hard to figure out how to do that. And it's not going to be figured out in 300 Day Hall. It's going to be figured out locally in different parts of the university.
So I thank you for your attention. And I'm open for your questions here in G10. And Joanne will know how to manage the electronic ones.
Let's start with what we have here.
OK.
But you should mention that every electronic one will receive--
Yeah, every electronic one will receive an answer. Obviously, not between now and 1:00. Please?
Hi. I hope you don't mind me asking the first question. My office hours start in 10 minutes.
Sure, perfect.
My name is Emily. I'm a grad student in the Department of Anthropology. I'm also a member of Cornell Graduate Students United. And I appreciate you sharing the principle that we should be making these tough decisions together as a community. And I'm very much in agreement with that.
Unfortunately, however, my understanding through my department and others is that budget cuts have already been made. And those cuts, which I understand have to do with the deficit in the provost office that you mentioned, have had to be passed on to departments. And I'm not sure if you're aware, but those cuts have already impacted graduate students. So I just wanted to share that and ask a question about.
We have, the union, has been contacted by several of our colleagues saying that in their departments, they've been told this late in the year that actually, they might not have TAships, RAships for next year. And these are people who are later in their years, who have families. And they're a bit more precarious than some of the rest of us who are in our earlier years.
And my understanding is the departments are not a place where they can turn to because they don't have the power. Because these cuts are being made, asked, by the department. So I wanted to ask, and I understand actually these are supposed to be cuts in non-salary expenses. But of course, since as grad students, we're not considered-- the work that we do is not really valued as work. So these cuts are considered non-salary expenses. I'm wondering if you could tell us were you aware of these impacts? Did you anticipate cuts in these areas? Who in the university can we turn to apart from our departments? Who's accountable? And what are the avenues for redress? Thank you very much.
OK, thank you. So let me answer a couple of those questions. And we can have more interaction by email later. The people accountable is everybody. That means you and your colleagues as grad students. That means the department heads, the faculty, the deans, the staff who work around you, and all the other students. So the first thing to recognize is that if there is a deficit in the university, it's something we all need to work together to try to deal with. And I hope that we agree on that.
Now, in terms of what happens locally in a department or a college, I'm sorry to say, the worst thing you want to hear from an administrator when you ask a direct question is, it depends. But the answer is, it depends. Not all parts of the university are the same financially. Not every college, not every department is in the same situation. As you know, graduate students are supported by a more complex calculus of funds. Some are TAships. Some are graduate research. And so I can't give you a specific answer about your area.
I can say that we have emphasized-- when I say we, Interim Provost Katz and I have emphasized that, to the extent possible, we would like to preserve employment at the university when these cuts are made. But eventually, how the cuts are made are decided by the deans and the vice presidents in consultation with the top administrators. That's Interim Provost Katz and Vice President Opperman.
Will there be situations in which there'll be reductions that affect people? I think it's likely that there will be. I don't think they'll be anything like what we went through in '08, '09 because we're not in circumstances like that anymore. So I can't give you a more specific answer for your area.
If you share with me by sending an email to my address, and you're comfortable with me doing it, I'll talk directly to the dean who's responsible in that area and try to get you an answer. But it's not possible when there is a deficit for everything to stay exactly as it was and to reduce that deficit. And in terms of the effects on individuals, that's going to be a consideration for people in the local area. And I'm sure the deans will agree with me about that. It's a very important question. Thank you.
Questions here in G10?
Yeah, please? Can you come to the mic if possible?
Hi, thank you, Professor Gorton. My name's Alex Parkhurst. I'm a sophomore in the College of Engineering, electrical engineering.
Thanks for coming. Thank you.
I'm the [INAUDIBLE] director for Cornell University Presidential Student Congress. My question specifically regards how the university is trying to cut waste in its operations. So I know you had mentioned some efforts that you made with procurement. But the questions are, what other efforts has the university made to cut waste? And as a student personally, we bear a lot of burden with tuition and fees, and we see personally firsthand a lot of waste in the university. What ways can we as students convey to the administration this waste we see so that we can derive better value from the university?
Thank you. It's a great question. And to make sure I understand the words you're using, when you say "waste," you mean operate in a way that we could operate cheaper and get the same thing done?
Sure. I'm talking about--
Is that what you mean?
--in what you purchase in the university, staffing waste.
I see, I see.
In a very broad sense, yes.
OK, thanks. Well, for sure, it's an important matter. It's part of the reason that we've had multiple committees involving, broadly, mainly staff and faculty and administrators, not so much students, but the administrative processes. I said on multiple occasions. And other leaders, Vice President Opperman and others, have focused our attention on the fact that the wisdom in a local area is where some of the best decisions can be made, so long as we're all operating under the same values.
And so it's a general term, how can we do better with administrative efficiencies? How can we do better with procurement? I would say we have those same values that you do. But we don't have all the ideas in Day Hall. That's for sure. So the ways that not only you, Alex, but everybody can contribute are really threefold.
One is to write directly to me, as many of you have. And as the deans and vice presidents and vice provost unfortunately know, as soon as you write me, I turn that over to somebody who works in that area and knows about it. But I welcome, for every day that I'm president of Cornell, for you to write me at david.skorton and for me to share those concrete ideas.
The more concrete they are, the more specific they are, the more helpful it is to me. And so within the general term, if you had time to write me and said, well, here's a couple things that I've noticed-- not naming names or anything, but saying, we're trying to get this and that done. Why couldn't we do that with doing it this way instead of that way? It'll be helpful. And I'll turn it over. So that's one way, write directly to me.
The second, more for employees, and I'm broadening it beyond the conversation with the student body, will be of course to talk to your supervisor. To the extent that the supervisors are doing what we ought to do, then we ought to be responsive to those whom we employ to come to us and say, you know, sir or madam, I think we could be doing this better. And we need to be responsive to those ideas. And I think in general, we are. We can always be better. That's the second one.
And the third one is through the shared governance groups. The shared governance groups have taken somewhat of a beating in the last couple of years on campus. They are very valuable to me. I've received over 750 resolutions from them over the nine years that I've been president and went to 9, 10 meetings a year, every year, and have gotten great wisdom-- haven't agreed with everything, but gained a lot from those.
So the third way is through the different parts of the campus as they're organized. Shared governance groups are not the only organizations. You're in an organization that you mentioned separate from a shared governance group, or subsidiary to one. And there's other ones like that. And our other colleague mentioned talking about organized labor. There's many ways to bring that forward. But there are ways to bring it forward.
So the most closely held goal I have for this discussion now, and for my last 100 days at Cornell, is that I can somehow help working with you all collectively to reestablish trust and some confidence in the administration of the university that we are listening, we want to do things together. So write me-- I'm not just talking to Alex. I'm talking to everybody who's listening to me. Help us understand new ideas within the context of the realities that I mentioned to you. Questions here in G10?
Please, and if you can come to the mic. And then, there's one up there, as well. So please. And if you don't mind lining up here, then we'll know that you're lined up. Yeah, please.
I'm Gabe Kaufman, and I'm actually one of the freshman representatives on the Student Assembly.
Great, thank you.
And my question is, how exactly-- because you've mentioned a lot of involving the community in financial transparency. How will shard governance exactly play a role in deciding how and what changes are made to the way the university allocates its budget?
OK. I'm going to answer in two pieces. Even though you didn't ask it, I'm asking for the shared governance groups and for each individual who has an idea, but especially the shared governance groups, to respond to this slide deck and tell me what's not in here that you want to understand better.
Some of this is based on stuff that's available in our audited financial statements. Other stuff is available here and there on our website. But it's obviously not been available in a form that you can just wrap your hands around. And that's my fault. And I want to do better. And I want to set the stage for the next president that there is a set of data that the campus can grasp. So even though you didn't ask about it, please help me understand what else would be helpful to you.
Then, once understanding the finances better, as we all every day are learning it better, how can you have input? One input is through resolutions of the SA. Some of those are easy to deal with. Other ones are not easy to deal with. But that's a well trod path that you can do.
And the other one is when I, or Vice President Murphy, or the new president, or the new vice president, comes to SA meetings, maybe consider-- and it's up to the SA leadership-- maybe consider focusing when we're at an SA meeting on one topic. And good democratic process, which the SA, GPSA, UA, EA, and Faculty Senate do, allows things to be brought up openly.
But we could focus on some area. And the SA or GPSA could say to talk about this area, President Skorton, please bring A, B, C, D, E with you. And let's have an administrative conversation about that one issue and focus on it. And that's just one idea. You have to decide if it's a good idea. I think we have time, Joel, for one more. One more question, and then I have to stop. Thanks for waiting. Excuse me, sorry.
Thank you, Mr. President. You may know me. I'm Wyatt Nelson.
I sure do.
Class of 2016, ILR. My question is simple. Why does Cornell need to have more administrators than instructors?
OK. Wyatt asked, why do we have to have more administrators than instructors? Or to put it a different way, I believe, why do we have more staff than faculty? Every institution of this type has one. Every one. Here's why, here's why.
For every minute that's spent in the classroom teaching, or the research lab researching, or the studio creating, there is a vast infrastructure that needs to be handled. And so please don't think me facetious, but turning the lights on in the morning, or putting up the PowerPoint, or doing the many other things that allowed us to be here and communicate today was not done by faculty. It was done by staff.
And so if you're talking about administrators at my level, we have fewer now than we used to have. I eliminated two vice presidencies in '08, '09, and they never came back. If you're talking about overall staff, as long as the university gets more complicated, and as long as there's more regulatory things with which we have to comply, there's going to be, at this and every university, more staff than faculty.
Now, could that ratio be made closer? Yes. Has it been made closer here? Yes. An 8% reduction in the staff workforce. It'll never get down to 1:1 because of the complex nature of the university. But I take your point, Wyatt, as many of the points that you've raised. And we should try to streamline, or whatever the verb is that you want to use, the staff workforce. But every organization like this runs as much on staff as it does on faculty. And that's just the way it is.
I want to thank everybody. I want to remind you, please, to get back to me. And I'll share it with my colleagues. And thanks very much for sharing this today.
President David Skorton speaks about Cornell's finances at a town hall meeting March 16 at G10 Biotech Building. Skorton discussed accounting methods, the endowment and challenges the university is facing.
View the presentation slides .
